Let Bad Banks Go Broke – says, Howard Davidowitz – Otherwise All These Bailouts Will Crush The Economy

Howard Davidowitz is a bear on America. If you’ve watched any of the recent clips, you know he’s negative on stocks, the economy and the political system. (If you haven’t seen them, check the links below.)Much of Davidowitz’s frustrations stem from the bailout of our financial system. “If a bank is bad, you let it go broke,” he says. “The bondholders lose their money, because they should. The stockholders lose their money, because they should. Lots of people get fired job, because they should. That’s the solution to the problem.”In the 1980s, Davidowitz’s firm worked on the restructuring of then struggling retailer Toys “R” Us. “We kept the good, we cut the bad. That’s how restructuring works,” he says. The national retail chain was cut down to 13 stores, but was kept alive. Today, the company is preparing for an IPO, five years after private equity giant KKR purchased the company for $6.6 billion. Again, Davidowitz believes the same measures should have been taken with the banks. Sure, bankruptcy is a painful solution in the short-term, but he believes the government’s rescue of some of our biggest financial institutions has had, and will continue to have, catastrophic economic consequences. As economist and Carnegie Mellon professor Allan Meltzer once said: “Capitalism without failure is like religion without sin.”

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Do You Know If Your Covered? Learn FDIC Insurance Limits

What does the FDIC do?

The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for up to $250,000 (through December 31, 2013).

What are the basic FDIC coverage limits?

  • Single Accounts (owned by one person):  $250,000 per owner
  • Joint Accounts (two or more persons):  $250,000 per co-owner
  • IRAs and other certain retirement accounts:  $250,000 per owner

What types of accounts are eligible for FDIC insurance?

FDIC insurance covers all deposit accounts at insured banks and savings associations, including checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limit.

The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you purchased these products from an insured bank or savings association.

Need More Information? Go to:  https://www.fdic.gov/edie/fdic_info.html#04

Elizabeth Warren says, Housing Market Getting Worse

Home Foreclosures Will Last For Years

10 to 12 million U.S. Homes Could Ultimately Go Into Foreclosure

There’s been a lot of talk lately about a recovery in the housing market – even reports of bubbles re-inflating in certain markets. Elizabeth Warren, chair of the Congressional Oversight Panel, isn’t buying it. “We see things getting worse in the housing market,” Warren says, citing the pernicious effects of foreclosures, which rose 5% in the third quarter to a total of 937,840, according to RealtyTrac. “The long-term impact of high foreclosure rates on our housing market and overall economy would be disastrous,” Warren warns, citing estimates that 10 to 12 million U.S. homes could ultimately go into foreclosure. “We have to get foreclosures under control. “Why the sense of urgency?

A single foreclosure property brings prices down an average of $5000 for every house in a two-block radius and costs investors an average of $120,000, she says. In its most recent report, Warren’s panel criticized the Treasury’s foreclosure modification efforts as “inadequate” and “targeted at the housing crisis as it existed six months ago, rather than as it exits right now. “Specifically, the Treasury program is targeted at subprime borrowers hit with ballooning mortgage payments vs. prime borrowers hit by job losses.  As for the “morality question” of whether the government should be bailing out homeowners, Warren says “I’m passed that,” noting “there’s plenty of unfairness to go around.”More importantly, “ultimately the American taxpayer — thanks to Fannie, Freddie and FHA — is going to stand behind many of these mortgage,” she says. “We need to be thinking more globally what is cheapest possible way to bring this crisis to an end. “One solution: Force investors holders these mortgages who may be betting on a government bailout to take a haircut, as occurred with GM and Chrysler creditors. “That’s why they call it investing,” Warren says. “You make profits in good times, take losses in bad times. That’s the fundamental part of this [modification effort] that’s missing.”

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Elizabeth Warren – Americans’ Trust “Shattered”

Americans’ trust in the financial system has been “shattered” in the past 18 months, says Elizabeth Warren, the Harvard law professor who chairs the Congressional Oversight Panel. She says we’re on our way to restoring that trust, but only as the nation’s elites wake up to a new reality:“What we’re having to do is change an entire culture.

Let’s be clear:  The folks who’ve been running these multibillion-dollar institutions – they are accustomed only to talking to other people who run multibillion-dollar institutions. And the rest of you can stay far, far away. What has fundamentally changed is they’re now taking taxpayer dollars. And the taxpayers think that gives them a seat at the conversational table and the decision-making table. And it’s taking a while for those CEOs to figure out the game has changed. And I do believe the game has changed.”

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Elizabeth Warren

Warren acknowledges that some Wall Street CEOs keep acting as if the old rules apply.

She is appalled at Wall Street’s continued practice of handing out oversized bonuses, as evinced by the latest revelations about AIG’s 2008 pool or recent increases in bonuses across the industry.

The idea that firms need to pay up to retain top talent “carries zero” weight with the bailout monitor, who also disagrees with the criticism the Obama administration is overreaching in its dealings with Wall Street. The president, she says, is calling shots as a major shareholder, representing the taxpayer.

“We’re going from a world in which folks at the top only talked to each other, and maybe their regulators on occasion,” Warren says. “It was a very quiet and very private conversation involving billions of dollars. Once you take taxpayer money…. it’s a three-way conversation.”

In that light, Warren believes there will be more public “conversations” like the AIG hearing. She believes faith in the system may be restored by a modern version of the Pecora Commission, which investigated the banking industry after the 1929 crash, although she dodged our question as to whether she would want to lead it, as some have proposed.